Assets vs cash NOT one asset vs another. 101

I raised cash yesterday by selling 20% of my liquid net worth of assets holdings. I sold gold, long term bonds and stocks without view on one asset vs another. Just raised cash while keeping my asset allocation roughly constant. I now hold 50% of my AUM in cash. Why would I do that. What makes me want less of an asset portfolio I'll refer to now as Beta and more cash.

Well my decision hinges on various factors and all are based on expectations

COT Vs TFF.

There is a chart going around using the COT data which suggest non commercial (speculators) are historically short equity futures. Firstly yep they (whomever "they are") are short and medium large but not historic

BUT Far more importantly the Non commerical is a terrible kluge of data including leverage longs and shorts and real investors. We never ever use COT data for equities because TFF is available and purpose built. Those who use COT are dinosaurs. TFF is moderately more useful because the cohorts are more sensible.

AIN is Unlevered long only asset managers. They are pretty long.but not as long as theyve been and I could accept the idea that they need to buy to keep up. BUt they are pretty long just not all time long

Lightning network as a way for $MSTR to earn on its BTC holdings 101

I am a sucker. As you may know I have been obsessed with how MSTR or any other BTC treasury company can earn money on its holdings in excess of appreciation.

People including my friend @LynAldenContact Whisper words that my old brain gives unmediated validity to because I'm a newbie dumb fuck on the topic. The Lightning network was one of those whispers.

My friend Claude and I did some work

Fed Bills purchases to add reserves 101

As mentioned in a bunch of my writings Reserves are abundant today. Without changing QT on treasuries of 5BN and QT on mortgages which runs at roughly 20BN reserves will not be scarce for at least a year or more

BUT...🧵 Someday in the future reserves will be ample and have potential to become scarce.

Firstly let's deal with do reserves matter at all. In my DSR from last winter

Global Wealth vs medium of exchange 101 - just some thoughts

I've been thinking a lot about my understanding of the value and amount of currencies and their link to global wealth. I am sure there is great research on this topic and would be grateful for sources. Nonetheless I suspect people are really confused about owning stuff (wealth) and mediums of exchange. I am, hence this writing.

In a world without currencies or any other medium of exchange wealth would still exist. Wealth isn't denominated in a currency. It's what assets you own.

MMT vs Old School impact of interest rates 101

These are my thoughts which could be completely wrong and have been formed by a fair amount but not exhaustive readings on MMT. Try to read this as a work in progress and a middle ground between two extreme views. The question at hand is whether increasing interest rates is restrictive on or stimulative to economic activity.

Here's where you are going to get angry. My answer is "it depends"

Let's posit two worlds

1. A world with only private and no government debt

2. A world with

Important charts to consider for rebalancing your long only portfolios 🧵

The stock market reminds me of Fred Schwed in 1940. In this case the companies that sell AI picks and shovels and AI services are the Brokers and everyone buying their services are the customers The 1940 example rings true to me as "the customers" are convinced that the services provided by "the brokers" will let the customers beat their competitors. "Keeping up with the Jones" has motivated Americans as long as I can remember. Brokers tapped that competitive spirit

Today as equities melt up I wrote down for DS Members the bull case for equities. Open minded exploration of bull and bear cases at all times is my process. Markets are almost always right so a bull case must exist. Here is mine 🧵 Let's give this a try. Reasons to be bullish stocks.

Stock prices change for a combination of fundamental and flow reasons.

Why should they go up.

Fundamentals

1. Accreting realized net income is almost always a positive and currently is running at 1% a month positive influence. As long as earnings growth is running at 12% this influence simply makes stocks more valuable as they retain earnings, buyback stock, and pay dividends.

All other fundamentals are expectations based. But without a change in expectations 1 dominates

However a change in expectations if it occurs is much more powerful than this monthly drift.

Expectations.

Consensus earnings growth expectations are for at least two years of ongoing 12% earnings growth. The realized is extrapolated out two years. While determining consensus earnings past then is prone to high errors in prediction in both directions. It's likely that a continued high rate of longer term earnings growth expectations is consensus

Corporate earnings are heavily driven by two major factors NGDP and deficits. NGDP drives top line sales because it is literally top line sales and deficits drive margin (Kalecki-Levy). Breaking those two factors down currently NGDP expectations are roughly 4.5% which is a combination of 1.5% rGDP and 3% inflation. Upside to NGDP expectation is not my view but if wrong real gdp could rise based on

population growth higher than expected likely driven by immigration cuz citizen demographics is highly predictable and slow moving

Productivity growth higher than expected which could be deregulation and/or AI delivering more than expected. (Expectations are likely pretty high but they could be too low)

Inhalation expectations are pretty stable and lowish while productivity gains which real growth depends on is most likely disinflationary lowering inflation expectations easy monetary conditions and leveraging up by private and public sector can offset that and keep inflation expectations high or even rising. (Thats good for stocks and bad for bonds). So there is a case for rising NGDP expectations and rising top line expectations for
Stocks.

What about margins. The big thing for margins is deficits. Currently and most frequently the biggest fastest moving variable for deficits are policy. In particular the most volatile component is tariff revenue. What I suppose is absolutely certain is announced tariffs have only downside from here. While around the margin I could imagine further tariffs assessment that seems less likely and small. Tariffs are pretty big. I suspect tariff expectations are much lower than current tariffs as they stand. Two reasons make me believe tariff expectations are lower than current assessment. 1. They may be declared illegal by the "radical left" circuit courts and that decision is upheld by Roberts /Barrett swing votes
2. The current assessed level is likely to be partly and meaningfully paid by US consumers and corporations which will reduce demand and raise prices and in aggregate be a net NGDP hit that will be pretty meaningful and destructive to the economy and stock prices.
For those reasons future tariff assessment expectations MUST be below current. However that expectation is FAR above tariffs being completely struck down or Trump voluntarily deciding to reduce tariffs a lot. So there is clear upside for tariff reduction which is pro NGDP and also increases the deficit which flows to margin. (Good for stocks and very bad for bonds unless intervention in bond supply follows). In terms of timing of the courts the circuit got the case last week and it should take a month for it to get punted to Supreme Court. I'm not a legal scholar but I read that the circuit court is highly unlikely to rule in trumps favor. It would be a huge negative surprise to markets if they rule in favor of Trump and a modest positive if they rule against based on Expectations. I have no idea how the Supreme Court rules and if 1/n

Synchronicity of thinking with @BobEUnlimited excellent piece on AI. This weekend I asked @DanielSimonyi to do some work on this topic for DSDATA 🧵 Here is his write up and some helpful charts

The most directly measurable impact of AI and data centers is reflected in private fixed investment in information processing equipment and software fwiw the full impact is probably somewhat higher. This category accounts for around 4.5% of GDP, with both Q1 and Q2 showing strong contributions to real GDP growth.

However, this pace is likely unsustainable going forward. The sharp acceleration in capex is likely behind us, and the recent growth rate may not be maintained. Any sustained weakness in final demand will almost certainly affect future investment, as AI demand ultimately depends on business revenues and profits, which are tied to nominal GDP. Realized and forecasted capex remain elevated, while free cash flow and cash and cash equivalents are declining for hyperscalers.

"Trillions" of Foreign Pledges of USD investment that Trump controls 101.

Many of the tariff deals contain murky promises, other commitments are also being made by Middle East sovereign wealth funds and private sector entities. The idea that Trump controls these investments Is also an important factor. It's all high drama and shiny object stuff. But I care more about the mechanics. The mechanics of a foreign USD investment in USD assets are the same as any other investment. The big question is how does one get the USD from whom and how is it raised

The Druck Myth about terming out the US debt 101. When thinking about the government finances many smart people (including Druck) make a fatal mistake and model the government as a private sector corporation or individual. Public finance is not the same as private finance. But let's assume for a moment that the Treasury was simply a market participant trying to time the market with its issuance. The period in focus is from April 2020 to March 2022. Where 10 year interest rates plunged during Covid and QE. Of that 2 year period Mnuchin was SoT

Genius Act compliant Stable coins 101 a legitimate threat to established players in the transaction space NOT a way to grow NET demand for USD or USD assets much.

People are unwilling to break down how money works and would rather kluge together lots of concepts in one 🧵 1/2 The most important red flag one should recognize when reading people's outlook for Stable coins is when they focus on AUM growth. Perhaps the most notable gaslighter is @SecScottBessent who has projected stable coin growth to be large and important as demand for US TBILLs.

Taking a step back 101 part 2. Policymaker tweaks - gasoline and fire extinguishers are both at play like during a crisis.

In part 1 of this thread I made a case that an excellent outcome would be a stabilization of NGDP at 4%.

https://twitter.com/dampedspring/status/1944021252575838625

4% achieved via inflation at target of 2%. Population growth at roughly 50bp and production growth at a robust but not historic high of 1.5% would be Goldilocks.

You may quibble at productictity being too low because of AI and deregulation but because of both of those being

Taking a big step back 101 Looking at the most major single economic variable is helpful sometimes. Current YoY GDP growth is at the post Covid low of 4.7% which is still relatively hot vs history but the flight path has been clearly in descent. Policymakers would ALL like 🧵 1/2 To have this single variable bottom at no less than 4%, a literal "soft landing" and avoid dropping into the 3's or 2's or worse and stabilize at 4% for the next decade. Regardless of political affiliation we all should hope for this outcome.

Why should we hope for this?

Why do investment mandates exist and what dynamics exist because of them 101.

Benchmarks are a formal version of an investment mandate but I am talking about the broad topic of investment mandates.

I don't think it's controversial but I may be wrong but I think an investment mandate serves a high purpose. An investment mandate allows an end investor to have a reasonable expectation of the risk and reward of the portfolio and its likely correlation to narrow and broader factors.

As many end investors allocate to many investments

AUM and returns for multi strategy funds 101. Because people struggle with my summing up of my alpha and beta returns instead of "using a weighted average" I thought it may be useful to help people understand how professional money management works. My experience is from decades of personal first hand knowledge. At my own hedge fund, Bridgewater, Brevan Howard, and first hand knowledge from PM's and owners of multi strategy pod shops. At the end of the day what matters is the return on AUM. What real dollars are earned

Manage your future money or your spot money 101 You can't do both and sometimes (Japan) you can't do either. Bonds or Money Choose your fighter.

Since the Fed began tightening all G4 currencies have depreciated va hard money and a consumption basket. But future money (bonds)
Are Trading in a range. Future money is being protected via issuance policy and CB reinvestment policies and QT taper. Yield curves ex Japan are pretty average steepness. Despite spot money losing purchasing power and store of value

Swap to floating 101.

How do issuers attempt to understand their financing costs relative to various alternatives and relative to competitors costs? How do investors determine the expected return of their investment choices? How do futures and options traders Determine the appropriate risk free rate to determine the forward price of the underlying asset they are trading? Lastly how do global issuers, investors, and derivatives participants determine these things in their local currency.

The answer is they all swap to floating

There is no "Maturity Wall" 101.
Though this is a myth you may not be relieved by this thread.

Have you seen the doomer charts about the maturity wall of US Debt. It is a clear signal that you should unfollow those who post it. It usually starts with 9TN of debt comes due. Notice the huge wall of debt maturities in the last chart. Sometimes the FURU posting the chart will do it monthly. Particularly when trying to suggest the Fed should cut rates to save the FURU's precious bags. Close to 6TN coming due in the next 3 months. OMIGOD PANIC!

U.S. downgrade 101 comments

Firstly it is not a time to make extreme statements. Breathe people.

What happened?
Moody's lowered its credit rating of the U.S. joining S&P who moved in July of 2011 and Fitch in August of 2023 at a AA rating instead of the highest grade AAA 🧵 Here's how I'm thinking about it.

1. Is there any technical consequences for holders of the debt
2. What happened in markets when S&P and Fitch downgraded and what was happening with fiscal policy?
3. Will the downgrade and possible market moves impact the fiscal policy makers

Fed reinvestment 101. It's in no way QE It's balance sheet size neutral and reserves neutral.

Ever since the Fed has held US Treasuries they have had some of those US Treaasuries mature. In periods when neither QE or QT is active the proceeds from maturities are reinvested in treasuries. They are purchased for many years now via a process called an Add-on to a treasury auction.

The treasury auction today sold 42BN ten years to the private sector. The yield was set completely independently from the